Inflation Down

by Mark Johnston

The trend of rising inflation since the middle of last year has been broken when inflation went down to 4 per cent in March.  Middle Eastern conflicts and tension in Africa has seen the price of oil being pushed higher and investors a little concerned. 

In February, this year, inflation was up to 4.4 per cent and for March, the Office of National Statistics said that inflation now stands at 4 per cent for March.

What has oil got to do with mortgage rates, you may be asking.  Well, the Bank of England has a responsibility to ensure inflation doesn’t get out of hand and to do this, the 9 member strong Monetary Policy Committee has to weigh up all market, economic and global trends to set the UK’s base interest rate.

This base rate is the bench mark for many mortgage rates that offer a tracker facilities or a variable rate.  So if inflation goes down then the BoE will more than likely move to raise interest rates from their current position of 0.5 per cent.

Next month there will more than likely be a rise in the Bank of England base rate against mounting pressure exerted by the inflation rates.  In the last few weeks there have been signs of the recovery slowing, particularly in construction and manufacturing weakening the case for increased rates.

There was a stark denial from the Office for National Statistics where there was suspicion that there had been a leak in their office after traders seemed to have advanced knowledge and were making money on from the inflation.  The ONS said “We are aware of rumors… that the inflation figures… may have been leaked in advance of publication. Our initial check shows no evidence of such a leak.”

The Retail Price Index (RPI) rate fell from 5.5 to 5.3 per cent, a rate that measures the change in the average cost of good and services.  The main reason the rate fell was due to the moderating food prices, lower air fairs and domestic fuel bill were also an aid in easing the tight belt of household budgets.  The increase in VAT earlier this year was a major “one off” factor, responsible for about 0.75 per cent of the inflationary rise.  The BoE believes that the impact of this will lessen by next year and move inflation towards the 2 per cent mark wished.  Experts in the industry still believe that inflation will rise again this year, given the volatility around the globe and the rise in oil prices.  Economists estimate that these trends are set to continue, a spokesman for BNP Parabas said”Sadly, we expect this slowdown in inflation to be short-lived. Inflation is likely to resume its upward trajectory from next month onwards, with CPI inflation still approaching 5 per cent by the year end. In particular, it is looking increasingly likely that domestic utility bills will rise by close to 10 per cent later in the year. given the trend of wholesale gas prices.   “Similarly, the acceleration in the CPI component for food has not yet caught up with the jump in agricultural commodity prices.”

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